ALEXANDRIA, VA (June 21, 1999) -- Occasionally, Barron's does come up with a good interview or article. This weekend's edition contained an interview (subscription required) with Robert Albertson, a fund manager that used to be a bank analyst at Goldman Sachs. As such, the guy pays close attention to the banking world.

I thought some of the information was excellent, particularly on the Y2K issue. Albertson says Y2K has already happened:

"...as of a week ago this day we went to January 2000 and no one has heard about it. As you know, the line has been that the financials in this country are probably compliant. But woe be us when we see whether the Europeans and Latins and so forth are. The reality is that last week, on Saturday, 13 countries, 51 banks officially, and probably 100 unofficially, all connected to the clearing systems globally and turned the clock forward to find out if it's fixed. And guess what? It's fixed."

I had no idea that was going on. I don't agree with the conclusion entirely, however. This doesn't fully eliminate counter-party risks in the system nor does it eliminate sudden liquidity or trading shocks that are a natural living part of any economic system. I really think the entire Y2K situation is way too up in the air for anyone to say something that definitive on the topic. Yet it's still interesting to see that these banks tested the system among themselves.

He also made some interesting observations about Bank One (NYSE: ONE), which has been on my radar but is a company I haven't done too much work on yet. According to Albertson, Bank One is adding 16,000 Internet accounts per month. Being one of the top two credit card companies in the country, Bank One is also in a dominant position to out-hustle online credit card companies -- and banks, for that matter. I think if you take a product with notoriously low switching costs, as credit cards are, and keep just some of those customers by getting them to sign up for other online services from you, you have a good chance at leveraging that customer base better.

The larger banks have the marketing muscle to sign up the customers and the servicing ability to make them happy. But do they have the products? That's what I'd like to find out. I personally don't know why a company such as Net.B@nk(Nasdaq: NTBK) wants to even be in the principal lender position. If people want checkable deposits with market-based interest rates, then they'd just as soon sign up with a brokerage. Securities Investor Protection Corp. (SIPC) insurance and industry surety in the brokerage sector is just as strong as banking.

If banks such as First Union, Wells Fargo, Bank One, Bank of America, and others are ready to go down that road, in essence acting as a fiduciary/agent/funds manager for customer, rather than as a deposit-taking institution, then I think some of the smaller Internet banks would be toast. Take the banks' ATM networks with their brokerage products and service abilities, offer the same product advantages with high deposit rates, and put it all together in resource management account, and you've got serious problems.

By the way, Associated Press writer Noelle Knox published this account of her experience with Net.B@nk. Many people have said "big deal, AOL experienced service problems when growth was taking off too." I believe there are entirely different levels of trust and expectations in a banking relationship as opposed to the relationship between an AOL customer and that company. AOL in 1996 offered a proprietary service with a rapidly increasing network effect upon customers. You don't get that with a bank. It's a commodity product where people will pull their account from you for life if you screw up in some way. I've just talked to too many people about this over the years to be swayed easily that customers will stand for many service glitches with their accounts. A bank is not AOL.

Have a good Monday night, hope to see you on the boards. Thanks for a great 1998-1999 season, Buffalo Sabres.